The central legal point established in the judgment is the requirement for proper evidence and adherence to principles of natural justice in proceedings under section 179 of the Income Tax Act, as well as the unsustainable nature of orders based on procedural violations.

JUDGMENT :

Dhiraj Singh Thakur, J.

1. In this petition, the petitioner who is the Chairman and Managing Director of one “Crest Paper Mills Limited (“CPML”), seeks the issuance of a writ of certiorari for quashing inter-alia the order dated 13th February 2018 passed under section 179 of the Income Tax Act, 1961 (‘The Act’) holding the petitioner liable to pay a demand of Rs.3,98,19,430/- alongwith interest under section 220(2) of the Act which was otherwise due and payable by the company, CPML. The demand outstanding against CPML was for the assessment year 2010-11.

2. Briefly stated the material facts in the light of which the present controversy has arisen are as under :-

(a) A Show Cause Notice dated 24th January 2018 was served upon the petitioner by the Assistant Commissioner of Income Tax, Circle 9(2)(2), Mumbai informing the petitioner that tax dues for an amount of Rs.3,88,19,430/- were outstanding against M/s. Crest Paper Mills Ltd. for the assessment year 2010-11 and that the same had not been paid by the assessee company so far. The petitioner therefore was asked to show cause as to why proceedings under section 179 of the Act be not initiated against him in his capacity as a Director of the said Company.

Reply to the Show Cause Notice :

3. The petitioner then submitted its response to the show cause notice taking a defence that jurisdiction under section 179 of the Act could be assumed as against a director of a private company and not against a public company.

4. A further stand was taken that proceedings against a Director could not have been initiated directly without first initiating recovery proceeding against the company. It was also stated that before action under section 179 is initiated against a Director, there has to be a proper finding that recovery of tax arrears was not possible from the company and further that in the show cause notice, there was no such averment that the tax due cannot be recovered from the company.

Order impugned :

5. By virtue of the order impugned dated 13th February 2018, the objections and contentions raised by the petitioner were rejected. It was held that the allegation that the proceedings under section 179 were directly initiated was baseless. It was held that after the tax demand, several phone calls were made to the ARs of the assessee which did not elicit any response whereafter the bank account of the assessee was attached for recovery of dues and further that proceedings under section 179 was initiated because the assessee was unwilling and non-co-operative to pay its tax dues.

6. On the issue whether section 179 could be resorted to against the directors of the assessee company being a public company, it was held that no evidence had been furnished by the petitioner to prove that it was a public company.

7. It was further held that the assessee company having been delisted from the stock exchange as a penal measure for failure to comply with the requirements of the Listing Agreement did not not warrant that the benefits attached to a public company should be accorded to the assessee company.

8. It was further held that assuming the assessee was a public company, yet by lifting the corporate veil, even the directors of such companies could be brought within the purview of section 179 especially where the affairs of the company were not conducted as a public limited company in its true sense. Reliance in this regard was placed upon Pravinbhai M. Kheni Vs. Assistant Commissioner of Income-tax, Central Circle-2 & 2, [2012] 28 taxmann.com 111 (Gujarat).

9. With a view to show that the affairs for the assessee company were run more like a private enterprise. The following factors were highlighted :

(a) Employees benefit expense claimed by the assessee was mere 61,841 in contrast to director’s remuneration at 2,88,000.

(b) A.O. has categorically concluded that the transactions undertaken by the assessee are nothing but accommodation entries in huge turnover recorded despite having practical